“Double Irish With A Dutch Sandwich” – Cryptocurrency Didn’t Start The Tax Evasion Fire

cryptocurrency tax evasion double irish with a dutch sandwich (photo by Tom Hannigan via Flickr)

“Double Irish with a Dutch Sandwhich” is an aggressive tax avoidance scheme that came to light in 2014. It uses tax laws, not cryptocurrency to avoid taxes.

President Donald Trump turned the nation’s attention toward cryptocurrency for the first time on Twitter this week. Trump minced no words and pushed back hard against the burgeoning home brew finance industry. The president said:

“I am not a fan of Bitcoin and other Cryptocurrencies, which are not money, and whose value is highly volatile and based on thin air. Unregulated Crypto Assets can facilitate unlawful behavior, including drug trade and other illegal activity….”

Cryptocurrency and Tax Evasion

The timing of this pronouncement against cryptocurrency from on high is conspicuous. It’s apparent now that reports of bitcoin’s demise have been greatly exaggerated. Meanwhile Facebook’s Libra cryptocurrency poses a serious and existential threat to the global financial order. The white paper for Libra was published near the end of June.

High on the list of concerns for U.S. policymakers in the “other illegal activity” category is the use of anonymous, open source, distributed cryptocurrencies like bitcoin for tax evasion. In early 2018, Commodity Futures Trading Commission (CFTC) Chair Christopher Giancarlo told the U.S. Senate that he suspects there is a great deal of illicit activity happening with the use of cryptocurrency, including tax evasion. “I don’t have hard data,” the CFTC chair admitted.

But there is hard data on tax evasion through fraudulent reporting and book keeping, as well as completely legal tax avoidance by exploiting the world’s governments’ own tax codes…

We Didn’t Start The Fire

In 2016 the Internal Revenue Service estimated that tax evasion cost the “federal government on average $458 billion per year between 2008 through 2010,” in lost tax revenue. When the IRS reported these figures, bitcoin was gathering steam, but still just getting started. It had a comparatively paltry market capitalization of $6.8 billion.

(Today bitcoin has a total market cap of $200 billion for the second time in its short ten-year history.)

In 2017, a report from the U.S. Public Interest Research Group on offshore shell companies used for tax avoidance found that:

“366 of the Fortune 500 companies (roughly 73%) have subsidiaries in offshore tax havens. These firms hold over $2.6 trillion in accumulated offshore profits. The largest culprits? Apple, Pfizer, Microsoft, and General Electric. It’s estimated that if all the Fortune 500 companies repatriated their profits, they would owe $752 billion in back taxes.”

So the politicians and regulators railing against cryptocurrencies for tax evasion should take a harder look at some of their own biggest campaign contributors.

Individuals and corporations don’t need cryptocurrency to shift the tax burden onto the middle class and less unscrupulous taxpayers. The writers of the tax codes have already done their work for them.

The cryptocurrency industry is replete with guidance for tax compliance for cryptocurrency investors, and those who are paid in cryptocurrency.

One example: Andreas Antonopoulos, a crypto educator and public speaker, one of the most respected authorities in the industry, has made a career out of introducing people to bitcoin and cryptocurrency. He has repeatedly said in his many talks and interviews that he pays all his taxes (he gets paid nearly exclusively in cryptocurrency). He discourages anyone from using the technology to evade taxes. He warns the IRS and other tax authorities will always get their money. And he has even provided common sense advice to holders of cryptocurrency to comply with tax laws.

But here’s what you can use cryptocurrency for:

If you’re interested in protecting and growing your wealth in a hard asset based on the very real expenditure of massive amounts of raw computing power (not “thin air” as the president claims) to verify transactions, secure your accounts, and shelter your money from deflationary monetary policy, cryptocurrency has an app for that.

Featured image courtesy of Shutterstock.